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Can Opel Deliver The `World Cars' Gm Needs?

December 03, 1995

International Business: GERMANY

CAN OPEL DELIVER THE `WORLD CARS' GM NEEDS?

John F. Smith Jr., General Motors Corp.'s hard-driving chief, loves GM's Adam Opel division in Germany. He loves it so much that, over the past three years, he has called on Opel to help solve more and more GM problems. An Opel engine is powering a new model for Saab, now 50% owned by GM. An Opel will soon appear in Cadillac's lineup. And Opel's staff is working with GM engineers to design three basic chassis, or platforms, for more than a dozen small-car models globally.

This plan could produce huge savings by lowering parts prices and other manufacturing costs. And it will do away with the long-standing practice of letting Opel and GM's North American operations pretty much design their own cars separately from scratch.

DEBUGGING. It's GM's version of Ford Motor Co.'s "world-car" programs. Yet GM's drive for worldwide efficiency has been hitting some nasty potholes. The Opel-designed Cadillac--a model to attract more first-time buyers of the luxury brand--is due in showrooms next year, but it probably will make little if any money, even if U.S. drivers snap it up. Saturn officials are scratching their heads over how to build a variant of the new Opel Vectra and turn a profit. And Peter H. Hanenberger, the German product-development chief at GM's International Operations, admits the high cost of retooling factories has delayed the grand scheme to trim the number of small-car platforms from nine or so to three. "This is a sometimes cumbersome and difficult process," he concedes. Adds Smith: "You can't throw out everything you own for the sake of globalization. It's got to make sense."

There's no doubt that Opel's skills, properly used, could save GM bundles, especially with the development tab for a new model now $1 billion or more. Yet throwing Opel's staff into crucial projects hasn't eliminated problems of quality or settled differences over marketing and design.

An example: At Saab, Opel engineers jumped in to help develop a badly needed new 900 model. About 25% of the car, including an optional V-6 engine, came from Opel's Vectra sedan. The car got thumbs-up in the motor magazines after its 1994 debut. But early production models, which start at $28,000 in Germany, have been plagued with glitches, such as weak brakes and overheating engines. GM officials blame the problems on a hasty introduction and Saab's lack of experience debugging a new product.

GM's first joint transatlantic project has encountered its own teething problems. The Cadillac Catera, a modified version of Opel's luxury Omega that goes for $48,000 in Germany is scheduled to hit U.S. showrooms next year for an estimated price of $32,000. But Cadillac and Opel officials have bickered over everything from styling changes to acceleration. German engineers, mindful of the European obsession with fuel economy, resisted pleas from Detroit that consumers wanted more oomph when they pulled away from a stop. The dispute went all the way up to Hanenberger, who gave a green light to lower gearing for more zip.

A thornier problem is that the Catera will be built in Opel's sprawling factory in Russelsheim, then shipped to the U.S. The strong German mark--roughly 1.40 to the dollar, vs. 1.60 when the project began--means GM will make little money: Expenses must be paid in costly marks, but sales will generate weak dollars. Executives privately concede they are in a bind on exchange rates. But they say Cadillac, whose sales have plummeted 16% this year, desperately needs a model that appeals to younger buyers looking for a Euro-style luxury car. The Omega was the cheapest way to get one. It's costing GM less than $100 million, vs. perhaps $1 billion for an all-new Caddy.

Undaunted, GM's global strategy board approved a plan to make an upscale Saturn based on Opel's new Vectra model, which was just introduced in Europe at a starting price of $26,000. The sedan would compete with the Honda Accord and the Toyota Camry and would be built on a GM assembly line in Wilmington, Del.

There are hitches, though. The Vectra has steel body panels, while Saturn has plastic doors and fenders, a favorite with U.S. drivers since the flexible plastic resists minor dents and scratches. Thus a Saturnized Vectra would have to be built with plastic panels. Smith says engineers have figured out a solution. But Saturn officials have yet to prove the car can make money, in part because of a costly new Opel engine Saturn wants to use.

Hanenberger still wants Opel engineers to team up with other company technicians to develop a world car with a four-cylinder engine. Opel has the most experience of any GM unit in designing such fuel-efficient cars, which account for half the world's auto sales. Opel also knows how to produce the firm, road-hugging European ride that carmakers around the globe are trying to emulate. In addition, Opel has spearheaded GM's push into Asia and Latin America.

COMPROMISES. Opel won't always take the lead. GM's American engineers will head up most truck and minivan projects, such as the new front-drive minivan due out in both the U.S. and Europe in 1997. Rivals and analysts say the van will be narrower than the model it replaces--the better to fit European roads. The possible drawback: American consumers won't find it roomy enough. "It's just right on the European side, but a tad small in the U.S.," says a top executive at an American competitor.

That sort of compromise has tripped up world-car efforts before. For example, Honda Motor Co.'s redesigned 1990 Accord was a hit in the U.S. but a flop in Japan, where it was considered too big. Similarly, Ford's Mondeo family sedan, introduced in 1993, has sold well in Europe but stalled in the U.S., where it is sold as the Ford Contour and Mercury Mystique. American consumers find the backseat too skimpy and the $16,000 average price tag too hefty.

Hanenberger thinks GM can succeed where other carmakers have failed. Success is crucial for GM. Company executives still must cut billions in costs if they want to revive the sputtering North American operation and free up scarce capital for a drive into Asia. And they must keep coming up with fresh design ideas for all of GM's brands. The talent is there, on both sides of the Atlantic. Turning that talent into profitable enterprise will take lots of patient tinkering.By David Woodruff in Russelsheim, Germany